The California Department of Finance has released proposed trailer bill language (PDF) to implement Governor Jerry Brown’s proposal with respect to the elimination of redevelopment agencies. The proposed legislation sets forth what the Governor proposed in terms of the dissolution of redevelopment agencies and the formation of successor agencies. According to the proposed legislation, all redevelopment agencies would be dissolved as of July 1, 2011, at which time successor agencies would step in to wind down the existing obligations of the former redevelopment agencies. The proposed language states that the intent of the Legislature is that redevelopment agencies take no actions that would further deplete the corpus of the agencies’ funds regardless of their original source, although existing contractual obligations of redevelopment agencies would not be impaired.

The protection and enforcement of existing legal obligations for already approved development projects is at the core of many concerns with the Governor’s proposal. The trailer bill language attempts to define “enforceable obligations” and “approved development projects” to be preserved as continuing obligations of the successor agencies. However, the proposed legislation leaves many questions unanswered. The impact on several clean energy projects that are to be funded through redevelopment agencies, or were in discussions with redevelopment, agencies remain unclear.

Votes taken by the Senate and Assembly Budget Committees last week generally supported the concept of the Governor’s budget proposal; however, alternatives to the elimination of redevelopment agencies continue to be floated. According to the Budget Conference Committee’s Major Conference Issues report dated February 23, 2011, a counterproposal from large cities could result in $1.7 billion in General Fund relief without eliminating redevelopment agencies. Now that the legislative language on the proposal to eliminate redevelopment agencies is available, litigation strategies and potential constitutional challenges regarding the proposed legislation are being examined by participants in the process. Latham & Watkins is continuing to monitor these developments and advise clients who may be affected by the proposed changes. For further information, please contact Ursula Hyman, Anna Rienhardt, or Peter Gutierrez at (213) 485-1234.

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